UPM annual report 2014

BOARD OF DIRECTORS’ COMMITTEES 2014 Committees Audit Committee

BOARD REMUNERATION AND SHAREHOLDINGS 2014

and discharged the President and CEO, and the members of the Board of Directors from liabil- ity for the financial year 2013. The AGM elected nine members to the Board of Directors and resolved on their remu- neration. Matti Alahuhta, Berndt Brunow, Piia-Noora Kauppi, Wendy E. Lane, Jussi Pesonen, Veli-Matti Reinikkala, Kim Wahl and Björn Wahlroos were re-elected to the board for a one-year term continuing until the end of the next Annual General Meeting. General Ari Puheloinen was elected as a new member to the board. Karl Grotenfelt, member since 2004, and Ursula Ranin, member since 2006, stepped down from the board. As regards board remuneration, the AGM resolved that the annual fee to the Board Chair be EUR 175,000, to the Board Deputy Chair and Chair of the Audit Committee EUR 120,000 and to other members of the board EUR 95,000. Of the annual fee, 60% was paid in cash to cover taxes and 40% in company shares purchased on the board members’ behalf. Since General Ari Puheloinen was able to participate in the board work only from the start of August, the AGM decided that he was entitled to 2/3 of the board member’s annual fee. No annual fee was paid to the President and CEO for his role as a member of the board. The board members’ annual fees, the num- ber of acquired shares and the number of UPM shares held by the members at the end of 2014 are presented in the table on the right. The board members do not receive any other finan- cial benefits for their board or committee mem- berships in addition to the annual fees. The annual fees have remained the same since 2007. According to the Board Charter, board mem- bers are encouraged to own company shares on a long term basis. The AGM also resolved on the company’s auditor, and re-elected PricewaterhouseCoopers Oy, a firm of authorised public accountants, as the company’s auditor for a one-year term, with Ms Merja Lindh, Authorised Public Account- ant, as the auditor in charge. The AGM decided that the audit fee would be paid against invoices approved by the Audit Committee. The fees paid to the auditor, as approved by the Audit Committee, are shown in the table below.

ing in December. Directors evaluated the board’s performance of its duties and responsi- bilities, board composition and structure, board culture, and the effectiveness of board meet- ings. Identified areas of improvement are con- sidered when planning the board’s work. One area of improvement that came up in the previ- ous year’s evaluation was a need to focus on and spend more time discussing the company’s strategic direction. As a result, strategic consid- erations were reflected on the board’s agenda during 2014 as described above. Committees of the Board of Directors The committees assist the Board of Directors by preparing matters within the competence of the board. The committee chairs report to the board on committee activities on a regular basis. In addition, minutes are kept for all committee meetings and distributed to all directors. The Board of Directors has established three committees composed of its members: the Audit Committee, the Remuneration Commit- tee and the Nomination and Governance Com- mittee. The board appoints the members of the committees and their chairs annually. A com- mittee always has at least three members. In 2014, all committees fulfilled their respective independence and desirable qualification requirements as set out in the Finnish Corpo- rate Governance Code and Committee Char- ters. The President and CEO may not be appointed as a member of these committees. The table on the right contains information on the committees’ composition, the number of meetings and attendance levels in 2014. Audit Committee Audit Committee duties and responsibilities are defined in the Audit Committee Charter. To perform these duties and responsibilities, the Audit Committee reviews the company’s quar- terly financial results and interim financial statements and recommends their approval to the board. The committee’s results review includes a review of potential significant and unusual transactions, accounting estimates and policies for the period in question. The commit- tee also receives quarterly reports on assurance and legal matters including status reports on internal control, internal audit, litigations, and other legal proceedings. The external auditor attends all committee meetings and provides the committee with a review of the interim audit as well as an account of the audit and non-audit fees incurred during the quarter. The committee also regularly meets with the inter- nal and external auditors without members of the management being present. As part of the committee’s compliance review, the committee is provided with a quar- terly report by the company’s Ethics Advisory Committee and a report of submissions under the Report Misconduct channel. With regard to risk management, the committee annually reviews the company’s risk management pro- cess and is informed of the top 20 strategic

Remuneration Committee

Nomination and Governance Committee

Director

Position in the Board

Annual fees (EUR)

of which shares (pcs)

Shareholdings as at 31 Dec. 2014

Members

Piia-Noora Kauppi (Ch.)

Berndt Brunow (Ch.)

Björn Wahlroos (Ch.)

Björn Wahlroos

Chair

175,000

5,595

250,249

Wendy E. Lane

Matti Alahuhta

Matti Alahuhta

Berndt Brunow

Deputy Chair

120,000

3,836

300,703

Kim Wahl

Veli-Matti Reinikkala

Ari Puheloinen

Matti Alahuhta

Member

95,000

3,037

58,991

Number of meetings

5

3

4

Piia-Noora Kauppi

Audit Committee Chair

120,000

3,836

8,981

Attendance-%

100

100

100

Wendy E. Lane

Member

95,000

3,037

30,649

Jussi Pesonen

Member, President and CEO

–

–

195,280

Ari Puheloinen

Member

63,333

2,025

2,025

Veli-Matti Reinikkala Member

95,000

3,037

33,821

Kim Wahl

Member

95,000

3,037

11,799

risks identified in this process. In 2014, the committee also reviewed risk management and compliance procedures in UPM’s energy busi- ness and UPM IT, where the focus was on IT security (Cybersecurity) risks. The Audit Committee is also responsible for preparing a proposal to the AGM for the elec- tion of the external auditor. In this respect, the committee evaluates the qualifications and inde- pendence of the external auditor. The commit- tee also arranges a tendering process for audit services at regular intervals, to ensure the inde- pendence and cost efficiency of the external audit. The latest tendering process was carried out in 2013, and as a result of this, the Audit Committee proposed the re-election of Pricewa- terhouseCoopers Oy as the company’s external auditor at the AGM of 2014. The previous tendering process took place in 2007. Remuneration Committee The Remuneration Committee’s primary pur- pose is to assist the Board of Directors in matters relating to management remuneration and succession planning. The company’s management remuneration consists of base salary and benefits, short-term incentives and share-based long-term incentives under the company’s Performance Share Plan and Deferred Bonus Plan. To perform its duties, the Remuneration Committee reviews each of these components of the total remuneration on a regular basis. The review includes benchmark- ing the different components to market prac- tices in corresponding positions in peer compa- nies. Based on this review, the committee makes recommendations to the board for the approval of salaries and benefits for the President and CEO and other senior executives, for structure, measures and targets for short-term incentives and for earning criteria and targets for the plans starting annually under the Performance Share Plan and Deferred Bonus Plan. Each year, the committee also evaluates the achievement of the set targets and the overall performance of the President and CEO and other senior execu- tives, and makes recommendations to the board for the approval of incentive pay-outs. In addition, the committee annually reviews procedures and development strategies for senior positions and succession plans for the President and CEO and other senior executives,

and reports to the Board of Directors on such matters. The committee also reviews the results of the employee engagement survey which is conducted every year in the autumn. Nomination and Governance Committee The primary purpose of the Nomination and Governance Committee is to identify individu- als qualified to serve as directors and prepare a proposal to the General Meeting of Sharehold- ers for election or re-election of directors and for their remuneration. The committee may engage – and has engaged – executive search firms to identify potential director candidates. When preparing its proposal to the AGM regarding director nominees, the Nomination and Governance Committee reviews the com- position of the board and the company’s cur- rent and evolving needs in terms of director competencies and initiates a search for potential new directors early in the autumn. When reviewing the composition of the board, the committee considers whether the board is sufficiently diverse in terms of profes- sional and educational backgrounds, gender and age, and whether it represents an appropri- ate balance of competencies in order to address the needs of the company’s business operations and strategic agenda. The committee has deter- mined that desirable skills and qualifications for the directors include, among others, relevant industry experience, expertise in finance and accounting, senior executive level experience in global international business, experience in leadership and strategy formation, and experi- ence in corporate governance. Evaluation of director nominees’ independ- ence is an essential part of the director nomina- tion process. As part of the committee’s assess- ment of director nominees’ independence, the committee reviews the directors’ current engagements and the company’s verification procedures concerning potential related party transactions and commitments that could jeopardise a director’s independence. Based on such procedures, no such transactions took place and no conflicts of interest were identified in 2014. In addition, the committee is regularly informed of any changes in directors’ employ- ment and other engagements so that it can assess the potential effects of such changes on

Total

858,333

27,440

892,498

The shareholdings as at 31 Dec. 2014 include also shares held by the directors’ closely associated persons and controlled entities. Up-to-date information on the directors’ shareholdings and any changes therein can be found on the corporate website.

chased amounts to 50 million shares, and the total amount of donations may not exceed EUR 250,000. All decisions were taken without voting. Board of Directors The company’s Board of Directors is composed of nine members as detailed above. Eight of the directors are non-executive and one is executive. The directors’ personal details, career histories and other significant engagements are presented on pages 65-66 and on the corporate website. Björn Wahlroos has chaired the board since 2008 and Berndt Brunow has been the Deputy Chair since 2005. Directors’ independence The Board of Directors, assisted by its Nomi- nation and Governance Committee, evaluates the independence of its members on a continu- ous basis. The evaluation is based on an overall assessment and, specifically, on the independ- ence criteria of the Finnish Corporate Govern- ance Code’s Recommendation 15. As the com- pany has no controlling shareholders and only two shareholders have disclosed an ownership of over five per cent of the company’s total shares and votes, the board has assessed that all directors are independent of significant share- holders. The board has also assessed that all non-executive directors are independent of the company. As the President and CEO of the company, Jussi Pesonen is not independent of it. Board work The duties and responsibilities of the Board of Directors and its committees are defined in the Board and Committee Charters approved by the Board of Directors. The Charters are avail- able on the corporate website in the Investors section, under Governance. The Board of Directors convenes according to a pre-determined meeting schedule. The meeting schedule is based on the company’s financial reporting schedule and is complement-

ed by the Board of Directors’ strategy and budget meetings. In addition, teleconference and per capsulam meetings are held when deemed necessary. In 2014, the Board held eleven meetings. The directors’ average attend- ance at the meetings was 99.0% (97.8%). In 2014, the board focused on strategic considerations and held an extensive strategy meeting in May that resulted in the approval of corporate and business area strategies. Part of the board’s annual strategy work is the review of group strategic and operational risks. The board continued its strategy work in September when it was updated on the strategy implemen- tation. During the year, the board was also regularly informed of the progress of the com- pany’s strategic priorities: the EUR 200 million profit improvement programme, the EUR 200 million EBITDA target of focused growth initiatives as well as the business portfolio development and value creation. In addition to the board’s annual and quar- terly duties pertaining to, among others, finan- cial reporting, budget follow-ups, management remuneration and proposals to the AGM, the Board of Directors resolved on a major invest- ment in the UPM Kymi pulp mill in Finland and on the revision of the investment plan regarding construction of the third production unit and power plant at UPM Changshu mill in China. Furthermore, the board approved the start of negotiations on capacity closures in the European publication paper business. These decisions were announced in February and November respectively. In relation to the busi- ness structure change that was implemented in November 2013, the board also approved new financial targets for the group and business areas, as disclosed in connection with the com- pany’s Capital Markets Day in March. Board self-evaluation The Board of Directors reviews its performance and working methods annually. In 2014, the evaluation was conducted as a self-assessment and its results were reviewed at the board meet-

AUDITOR’S FEES EURm

2014

2013

Audit

2.0

2.6

Audit related

–

0.1

Tax consulting

0.6

0.9

Other services

0.5

0.1

Total

3.1

3.7

Further resolutions taken in the AGM include authorisations to the Board of Direc- tors to decide on the repurchase of the com- pany’s own shares and to decide on donations for charitable or corresponding purposes. The maximum number of shares that may be repur-

CONTENTS

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UPM Annual Report 2014

UPM Annual Report 2014